The uptick rule, which limited short selling, is likely to be proposed Wednesday by the Securities and Exchange Commission.
The agency has scheduled a meeting Wednesday morning during which it will consider whether to propose short-sale price test rules, according to a notice from the agency.
The rule, which was in effect from 1938 until 2007, restricted short selling in a declining market. Under the rule, the market needs to have an upward drift to it in order to short, said Michael Gray, a partner who heads the fund formation and investment management practice group at Chicago law firm Neal Gerber & Eisenberg LLP. The firm represents brokers, asset management firms, hedge funds, private-equity funds and investors in alternative investments.
It will make it more difficult to short, which can take some of the downward pressure off a market thats headed down, he said.
Mutual funds and money managers that hold stocks for the long term, as well as public companies, are likely to support reinstating the rule. Hedge funds, which often rely on shorting stocks, will likely be against the rules reinstatement, Mr. Gray said.
There are not further details at this time as to what the commission will consider, said SEC spokesman John Nester.
Companies have argued that abolishing the rule contributed to the destabilization of the current market.
The SEC conducted studies from 2004 to 2007, during which time markets were generally rising. The regulators conclusion was that the uptick rule was not necessary to stabilize markets.
Sara Hansard is a reporter at InvestmentNews, a sister publication of Pensions & Investments